See what a past or future amount is worth after inflation.
Future value = amount × (1 + inflation rate)ⁿ.
Inflation quietly erodes the purchasing power of money that isn't growing fast enough to outpace it, and the gap between a nominal return (the headline rate an investment or savings account advertises) and the real return (what that rate is worth after subtracting inflation) is one of the most consistently underappreciated numbers in personal finance. A savings account paying 6% interest during a year of 6% inflation delivered a real return of roughly 0% — the account balance grew, but its purchasing power didn't, which is easy to miss when only the nominal number is visible on a statement.
Applying the Rule of 72 to an inflation rate rather than an investment return gives a quick, sobering estimate: at roughly 6-7% annual inflation (common in several fast-growing economies including India over extended periods), prices can double in about 10-12 years, meaning something costing ₹1,000 today may cost roughly ₹2,000 in just over a decade even with no change in the item itself. This is the core reasoning behind why "safe" low-yield instruments aren't automatically the lowest-risk choice for long-term goals — an investment that feels safe because its value never drops can still lose real value every year that its return trails inflation.
Nominal return is the stated percentage growth before adjusting for anything. Real return subtracts inflation from the nominal return to show growth in actual purchasing power. A 6% nominal return during 6% inflation is roughly a 0% real return — the money grew in number but not in what it can actually buy.
Using the Rule of 72 on the inflation rate gives a quick estimate: at 6-7% inflation, prices roughly double every 10-12 years. That means an amount that feels sufficient today may only cover half as much in real terms a little over a decade from now if left completely uninvested.
Yes — this is one of the most common blind spots in personal finance. An account or instrument that guarantees no nominal loss can still steadily lose purchasing power every year its return trails inflation, even though the balance itself never goes down. Low-yield 'safe' instruments carry this real, if less visible, form of risk.
Any long-term goal (retirement, a child's education, a future purchase) should be planned using a real (inflation-adjusted) target rather than today's cost, since the actual future cost will almost certainly be higher. Most financial planning conventions build in an assumed inflation rate and target a real rate of return meaningfully above it, not just a positive nominal return.